In December, when bitcoin hit a record of $19,000 a coin, the co-founder of the Bitcoin.com website cautioned that bitcoin was “the riskiest investment you can make”.
You should consider the following before you jump on board.
How safe is it to invest in bitcoin?
Investing into bitcoin would imply buying into the complex algorithms on which it is based, also on the future of the peer-to-peer scheme that controls it.
Al Jazeera studied the terms and conditions which would have to be accepted by an investor to purchase in bitcoins from a Swiss-based exchange operator. The risks that you would be agreeing as an investor in bitcoin include:
- The volatility of prices. The worth of cryptocurrencies may vary significantly even within 24hours, which would imply a capital financial loss of your investment.
- The price of bitcoin fell by 26 percent in December of 2017.
- The value fell again by over 10 percent in January 2018, attaining the $8,000 mark. The price fell below $8,000 in February and was exchanged for as low as $7,574.20.
- Ethereum and ripple (other virtual currencies), also fell sharply. This represented a fall of around $67.7bn in 24 hours, according to Coinmarketcap.com.
- Cryptocurrencies do not have the historical track record of other commodities or currencies, like gold, that could guide whether present levels of volatility are typical or atypical.
- The risk of hacking. A South Korean cryptocurrency exchange mentioned it would file for bankruptcy after it had been hacked for the second time that year on December 19 of 2017.
- “Hard fork”. Since the support for and value of the currency rely mainly on the community using it, the conflict between the stakeholders may cause the
splitting of the network to promote new competing cryptocurrencies, this is well-known as a “hard fork”.
- The Bitcoin.com website’s co-founder, Emil Oldenburg, reportedly “sold all my bitcoins recently and switched to Bitcoin Cash”.